By Eric Rocks
The global investment marketplace is constantly evolving and keeping up is a competitive necessity. To effectively manage your business growth, you must optimize your operations and anticipate market changes and new requirements. The financial industry has grown exponentially over the past 30 years, and better technology has enabled investment teams to manage this growth and its accompanying complexity effectively and efficiently.
Key trends influencing technology and operational decisions in today’s market:
- Asset class proliferation
Mainstream institutional and high-net-worth clients want diversification and alpha. Adding geographical diversification and non-traditional assets to portfolios (e.g. investments through hedge funds and private equity) provides opportunities for significantly better returns.
Investment firms need systems that provide consolidated reporting on entire book of assets and can adapt easily to new financial products and investment strategies. The globalized marketplace calls for open architecture technologies that adapt to local market requirements and provide true complex and cross-asset multi-currency processing.
- Increased regulatory pressure
Investing in multiple markets means coping with multiple regional and global regulations. These could include the evolving SEC rules in the U.S., the EU’s AIFMD, UCITS, EMIR, and Solvency, Asia’s fund recognition schemes within the Greater China bloc and across APAC, and Australia’s APRA regulations. Data is at the heart of all these regulations; to run efficient and compliant operations, a firm must be able to maintain, organize, and report accurate, reliable data in a way that demonstrates transparency.
The right financial technology ensures cost effective and successful execution of regulatory reporting. An open architecture built from the ground up provides transparency without the heavy investment of manually pulling, merging, and massaging data from legacy platforms. You need to be able to easily collect data from different sources, and then store it in a manner that allows you to mine information efficiently. Flexible reporting capabilities make compliance less of a burden.
- Mastering the data deluge
Making sense of the volume of data flowing from both external sources and internal activities can be daunting. Firms need systems and processes that aggregate data from multiple sources, so it’s easier to find, analyze, and share information that impacts decisions. Firms that can harness data, glean insights and intelligence from it, and apply it effectively in decision making stand to gain a distinct advantage.
- New competitive pressures and changing client expectations
Investment management firms must contend with ever-escalating competition but also with new investor expectations. Firms that deliver results, communicate effectively, and give their clients options stand a better chance of retaining and attracting clients. Firms need modern reporting capabilities with powerful analytics that enable them to both understand and explain factors affecting portfolio performance. These tools must be accessible from multiple devices, available 24-hours a day, provide up-to-date information, and offer analytics “on the fly”. Push technology is another trend permeating the financial marketplace which allows systems to automatically inform clients of important events based on their preferences.
- Cybersecurity and protection of client assets and data
Investment firms are prime targets for network-borne threats. In a market where everyone is connected, everyone is vulnerable. That is why regulators have heightened their scrutiny of firms’ cybersecurity systems, practices, and documentation. Increasingly, regulations require institutions to have an information security management system (ISMS) that spells out policies and procedures to protect information assets.
Protecting sensitive client data and assets requires a multi-layered, “defense-in-depth” approach that combines prevention, detection, mitigation, and response. Firms need dedicated security teams and strict access to authentication controls, combined with powerful intrusion prevention and detection technologies. Firms must also ensure system and process resiliency to minimize the impact of any breaches on their operations. To learn more about cyber risks, read our blog, Access – a key issue of cyber risks.
- Increased outsourcing options
Asset managers are increasingly turning to outsourcing or selectively co-sourcing their middle- and back-office operations. Offloading non-revenue-generating activity such as reconciliation, data management, or reporting can help reduce overhead and allow firms to focus on what makes money.
Technology outsourcing options enable firms to leverage remote computing resources for software and data storage, reduce the in-house IT footprint, maintenance requirements, and operational risk. A hosted or cloud solution supports mobility by allowing authorized users anytime, anywhere access to the platform. For many firms, the outsourcing option proves more cost-effective because it reduces the investment in hardware and the expense of in-house IT troubleshooting expertise.
With outsourcing the provider is solely responsible for keeping systems up-to-date. The provider should perform frequent upgrades and enhancements as new functionality is developed or requirements emerge. A cloud or hosted solution should also give the ability to expand computing capacity on demand – to scale up as assets, accounts, and volume grow. With outsourcing, firms don’t needs to compete to attract top technology talent, and can focus instead on investment talent.
Finally, don’t forget cybersecurity. A provider should be able to demonstrate that its systems, facilities, and staff adhere to the most current security standards and controls; and should also have the audits and certifications to prove it.
It’s important to find a provider that has the right combination of a robust technology infrastructure and best-practice operations expertise, along with the service acumen and the flexibility to customize its capabilities to your needs. To learn more about this topic, read our whitepaper, What is at stake? Weighing the risks of an inefficient middle office.
It’s all about enabling growth
The operational and technology decisions and investments you make today should put your firm in the best position to take advantage of growth opportunities. Efficiently managing an increasing volume of assets and clients, while gaining a nimble footprint in the dynamic investment and regulatory world, will ensure your firm can grow revenue while keeping costs low.